by Larry Ribstein for Truth on the Market, March 21st, 2011.
The so-called “Dodd-Frank Wall Street Reform and Consumer Protection Act” was supposed to fix the problems that led to the financial bust. Of course, that would require some understanding of what, exactly, those problems were, which Congress lacked. The Act did little to fix the credit raters or the derivatives market that surely had something to do with the crash. But it did include countless ill-considered provisions and rules lying in wait behind studies. I’ve already commented (here and here) on the Act’s unwarranted federal intrusion into aspects of corporate governance that had little to do with the meltdown. And I’ve noted the Act’s contribution to hobbling initial public offerings.
Yale’s Jon Macey comments in today’s WSJ on the potential fallout from one of D-F’s most buried little gems: Section 929R(a)’s authorization to the SEC to reduce the period for reporting 5% share acquisitions from ten days to “such shorter time as the Commission may establish by rule.” Marty Lipton’s takeover defense firm, Wachtell, Lipton, Rosen & Katz, has seized on this provision to propose that the SEC reduce that period to one day.
Alerting the market to a potential impending bid raises share prices and therefore the takeover’s overall cost. This would add to the effects of a long-term trend at both the state and federal level of allocating increasing shares of the potential gains from takeover-induced governance reforms to the incumbent shareholders and away from the bidder. This is fine for the shareholders, given the existence of a bid. But if you increase the price of bids you’re likely to decrease the supply. Fewer bids = more power to incumbent managers. (continue reading… )